Cycle News - Archive Issues - 1970's

THE FE ER E ERGYO FCE SPE SOUT 0 « H CR SIS» You may not want to read this, but then don't be surprised when you're sitting around wondering why there's no gasoline available for your motorcycle, By Robert F. Hemphill, Jr. The only crisis larger than the energy crisis is the crisis of confidence - whether anybody believes there is a crisis. The best way - or at least the only way we know of - to settle the arguments is to give you the straight and honest an swers to questions about the shortage. Other people may have other answers, but these arc the ones we're working with. Is t here really a shortage? 8 It's hard for someone as close to the problem as we arc to understand the feeling that the energy crisis is something of a hoax. You can't receive the daily ph one calls that pour in to our office - from utilities with only 27 days reserve of residual oil on hand , from school districts unable to get bids on contracts for gasoline or heating oil , from independent truck drivers faced with limits on diesel fuel at truck stops - and not be come a believer in the reality of the shortage. Here arc our best estimates of what is happening and why : Under normal conditio ns, we would expect to co nsume over 19.1 million barrels of petroleum per d ay this year, an increase of 1.5 milli on barrels per day over 197 3. T h is is a co n tin ua tio n of the historic t ren ds in gro wth of demand. U.S . domestic p roducti on, o n th e other hand, leveled o ff in 1971 and has b een declin ing sinc e th en . We n ow produce ab out II mill io n barrels pe r d ay in the U.S . T he d ifferen ce has been made up fr om im ports. The resul t has been eve r increasing levels of im ports an d a growing d ep en den ce o n Arab crude oil and products re fine d fro m it, In Oct ob er, th e Arabs, wh o had bee n supply ing u s wi t h ove r 1.5 mill ion barrels a day of cr ude, an nounc ed an em bargo on sh ip me n ts to th e U.S. , wh ich is now 100 pe rce nt e ffective. T he resu lt is a shortage th at simply canno t be denied . In developing o ur esti mates of th e shortage, we have used a wo rst case situation . \Ve assume d nonnaJ growth in demand, a fully effec tive Arab embargo and inv entory shrinkages to minimum operating levels. We c oul d have assu med embargo leakages or larger inventory drawdowns, but th ese are irresponsible assumptions for pol icy -making, We can no t d evel op programs which arc not ad equate to cope with th e ma ximum expected sho rtage. We'd rather be surp rised b y favorabl e eve nts th an destroyed by over -optim istic esti ma tes. To so me exten t, we are the victims of o ur own mod est success. In early Decem ber, the Federal Energy Office began a crash program to man age the fu el s hor tage an d e nco urag e co nservation . T here has been a tremendous response bv the American people to conservat io n mrnanves. We have also been helped by warmer than normal weather, and by leakages in the Arab oil embargo. All of this means lowered co nsu mp tio n which builds up our inventory position, and leads to some current confusion in discussion of th e shortage. Our invento ries of most petroleum products arc now higher than a year ago, but this is by a very thin margin. The simple fact is that we don 't have aU that many sto rage tanks in the en tir e country. What is important over the longer term (m o re than two months, that is), is how much is co min g into the system and going out, not how much is stored. In October of 1973, we imported 6.7 million barrels of oil a day, a figure based on statistics submitted directly from U.S. Customs to the Office of Oil and Gas in the- Department of the Interior. For the week ending January 10, 19.74, the American Petroleum Institute reported 4.96 million barrels a day of imports. These re cent import levels mean that we are importing I. 7 million barrels a day less than just two inven tories and produc tion cos ts , and we will ge t it, one way or an other. The data we now use co mes from a variety of sources. Data on the domestic petroleum supply sy st em arc gathered by the Bureau of Mines (BOM) and by the American Petroleum Institute (A PI). The Bure au of Mines data are gathered primarily through a monthly report by refining co mp an ies, supplemented by monthly data gathered from import terminal operators. Additional information on cru d e oil production is obtained from state agencies, and additional information on imports comes from the Bureau of Customs. The A PI has a less detailed reporting system than the Bureau of Mines, but it receives and publishes data on a weekly basis. API Cbllects refinery information from about 60% of the refiners whi ch account for over 90% of domestic operations. This includes information on refinery crude runs, production and yields of all major refined products, and inventories of cru de oils and finished products. They also compile detailed information on imports. We have mad e independen t cross-checks and found that these data are reasonably accurate but there are still problems with these data collection methods. First, industry co vera ge by the API for th e weekly statistics is not co mp le te. Smaller refiners and importers are not included , and the statistical te chniques used are not adeq uate in times of shortage and rapid ch an ge. The second major problem deals with s e condary stocks, i.e., petroleum produ ct inventories n ot held b y refineries. Data on actual co nsum p ti o n are also lacking. Information about secondary stocks and consumption can only be pieced together incompletely from a number of sour ces. There are two other shortcomings in most of our cu rre n t energy data: lack of regional and seasonal differentiation in co nsum p tio n. To make our allo cation Mr. Hemphill was invo lved in the ori ginal formation o f the Federal Energy Office at the policy and planning level. He was on loan from the Office of Management and Budget, the government's fiscal wat chdog, to which he has returned as of last week. He as assured us th at OMB will be giving careful scrutiny to o perat ions o f the newly created Fed eral Energy Office. m onth s ago , and are 2.7 milli on b arrels a d ay below our expected needs. This s ho rtage will quickl y reduc e our inve n to ries to danger o usly low levels unl ess we co ntinue pro grams to redu ce demand and reallocate th e ava ilable supp lies. For ex am ple. heati ng o il inve n tories stand at about 20 0 milli on barrel s, almost 30% above last year. Bu t with a ful ly e ffective e mbargo a nd an a b nor ma lly col d wi n t er , th ese inven tories would be reduced to levels where spot sh ortages migh t occur by mid-March . In fact, o ur cru de o il invent orie s at re fin eries have decreased for th e last four weeks, and are now four percen t b elow normal minimum levels. Refineries are op eratin g a t their low est weekly level sin ce J anuary of 197 3. How good is our information? Decis ions o n dealing wi t h a sh ortage are no t be tt er th an the data o n whi ch they are based. T he in fo rma tio n we n ow have to work with is not adeq ua te and its reliab ilit y ca nnot be checked. We need better d at a on eve ry aspect of ene rKY - reserves , re fin ery o pe ratio ns, programs w ork properly, we have to kn ow wh ere and wh en different petroleum products are needed. Further bre akdowns o f consu mp tio n b y type o f industry, or o the r users, are not availa ble. All of ou r curre n t so urce s of da ta arc volun tary and for many of th e programs we no w operate, th is isn ' t good enough. We need man datory reportin g syst ems and mechanisms to chec k and en force their operatio n. We are d ealing wi th th ese pr oblems In two ways: First - we have begun to co ns t ruc t, under existing legal authority , sy s te m s to measur e secondary sto cks, to sample a ctual consumption, and to give us regional and seasonal variance data, as well as mor e c o m p le t e and t irn e l y information from the oil c o mpanies. This system will co ver no t only supplies, inventories, and other physi cal factors, bUI dolla r costs an d pro fit s as well. You may not want to read th is, but then don't be su rprised when y o u arc sitting aro und wondering wh y there's no gaso line to run in your bik e. Se cond - we are asking Con gress fo r n ew la ws requiring sp e cific mandatory reporting. We need more appropriat e p en alt y and enforcement p rovi sions. \\'e need to cover other ene rgy sources besides petroleum, and we need to include information on reserves, capped . wells, and the like as well as curren t operating information. Wee x p e ct that confidentiality limitations for co mpetitive or national security reasons will be limited. Most of the information 'we gather will be widely available. We (the FEO) need the facts and th e public needs the facts. What is our strate gy fo r dealing with t he shortage? Our basic goal is to minimize economic disruption at the expense of some personal luxury or comfort. The American people would rather tum down their thermostats and switch from private cars to carpools or public tr ansportati on, than undergo widespread unemployment and other economic dislocation. This proposition is reflected in the almost co mple tely voluntary response to energy co nservati o n so far: - In New England, our most recent figures show that heating oil use is down 16 percent from last 'year , even after corr ecting for the warmer weather. - Consumption of electricity is down 10%. N atur a l g as c o n s u mp tio n, nation-wid e, is down by six percent from last year. T his is the first time that ab solute demand for that fuel has not risen from one year to the next. - Gasoline c onsum p tio n for the month of De cember was 8.7 percent below what we expected. The bulk o f non-essential petroleum use is in gasoline, so we are seeking shifts in the patterns of production in Ameri can oil refineries. Refiners are being encouraged to produce less gasoline and more heating fuel, diesel oil, residual fuel oil, and petrochemical prime produ cts. Price control regul atio ns have been revised to discourage gasoline production, and we hav e auth o ri ty to mandate refinery shifts, if necessary. Refiners are responding to price incentives alrea d y : refinery yields of gasoline are averaging 42% of the barrel o f cr ude oil input, rather th an th e normal 45% for this time of year. On c e r efin eri e s have shifted production in th e ways we want, there will st ill be sho rtages, but ones that should be manageable. Mandatory allocat io n regula tio ns, published in final form on January 15, are designed to handle th ese sh o rt ages in vari o us ways. By individual pet rol eum product, our shorta ges, and plans for handling them, are as follows: - Ker osen e jet fuel : 154 thousand barrels per d ay ( J5% of total projected dem an d ). The airlines have alrea d y red uced sche d u les to make up this shor tage. - Nap thaje t fu el: this is prin cip ally consumed b y th e military and is being provided to th em fo r nati o nal security. Each quarter, we will care fu lly scrutinize the total DOD fuel request s. - Middle Distillates, primarily diesel fuel and number 2 home heating oil: 500 thousand barre ls per day (12 % of projected demand) . Allo cation re gulations require six degre e Fahrenhe it redu ctions in residential he aling levels an d ten d egree Fahrenh eit reducti on in commercial and o the r space h eatin g use to mak e up this shortage. - Residual fuel oil: 3 75 th ousand barrels per day ( I I % of project ed dem and). To be made up by he at ing redu cti on s, vo lun ta ry ele ctrical

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